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Economic Indicators to Watch and Why

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Here’s a primer on the most
common and vital economic indicators. Use it to
advise clients on the health of the economy and the
strength of their investments.

Gross Domestic Product (GDP).
A way to gauge an economy’s
health, GDP represents the market value of
all goods and services produced in a
nation during a specific period. The
Federal Reserve uses such information to
adjust monetary policy, which includes
raising and lowering interest rates ( www.bea.gov
).

Money Supply (M2).
This figure represents the
total of all the money a country has in
circulation. The Fed uses it to assess
economic conditions and to help alter
monetary policy; economists use it to
predict recessions and recoveries and
expected changes in stock prices (
www.federalreserve.gov/releases/h6
).

Consumer Price Index (CPI).
Essentially a measure of
individuals’ cost-of-living changes, the
CPI measures fluctuations in prices paid
for goods and services by urban
households for a specified month,
providing the best gauge of the
inflation rate related to purchasing
those goods and services. Changes in
inflation can spur the Fed to change
monetary policy (
www.bls.gov/cpi/home.htm ).

Producer Price Index (PPI).
It measures the changes in
selling prices of goods and services
U.S. producers receive over a period of
time. The PPI captures price movements
at the wholesale level at three stages
of production: crude, intermediate and
finished goods. It’s the first inflation
measure available each month (
www.bls.gov/ppi/home.htm ).

Consumer Confidence Survey.
This leading indicator of
consumer spending gauges public
confidence about the health of the U.S.
economy. It’s based on a random sampling
of 5,000 people asked how they feel
about business conditions, the labor
market, consumer spending, economic
growth and their employment and
financial expectations six months into
the future (
www.consumerresearchcenter.org ).

Current Employment Statistics
(CES). These data on
national employment, unemployment and
wages and earnings across all
nonagriculture industries are the
earliest indicators of economic trends
released each month. Employment rate
data show the well-being of the economy
and labor force. Wage changes point to
earnings trends and related labor costs.
Economists focus on monthly change in
total nonfarm payrolls and where jobs
were gained or lost. Payroll data show
how tight the labor market is: Tight
markets can translate into wage
inflation (
www.bls.gov/ces/home.htm ).

Housing Starts.
The data show the number
of single-family and multiple-unit
buildings under construction for the
month. They show how many homes were
issued building permits, how many
housing construction projects were
initiated and how many home construction
projects were completed (
www.census.gov/cgi-bin/briefroom/BriefRm
).

Manufacturing and Trade
Inventories and Sales.
These are the combined
value of trade sales and shipments by
manufacturers in a specified month, as
well as the combined values of
inventories and business sales.
Inventory rates give clues about the
growth or contraction of the economy (
www.census.gov/cgi-bin/briefroom/BriefRm
).

S&P’s 500-Stock Index.
Standard & Poor’s
market-value-weighted index of 500
publicly owned stocks is the benchmark
of overall performance of U.S. equity
markets. It is a measure of the nation’s
stock of capital, as well as a gauge of
future business and consumer confidence
levels. Companies are chosen based on
market size, liquidity and industry
group representation, and component
companies are periodically replaced (
www.spglobal.com ).